Market participants and economists largely expect the central bank to maintain status quo on interest rates, after having already delivered a cumulative 125 basis points cut in the repo rate since February last year

The Reserve Bank of India’s six-member Monetary Policy Committee (MPC), headed by Governor Sanjay Malhotra, on Wednesday began its bi-monthly meeting to decide the future course of interest rates, amid a growth-supportive Union Budget and improved global sentiment following the announcement of an India–US trade deal.

The outcome of the meeting will be announced by the Governor on Friday morning. Market participants and economists largely expect the central bank to maintain status quo on interest rates, after having already delivered a cumulative 125 basis points cut in the repo rate since February last year.

Several experts believe the current macroeconomic environment does not warrant an immediate rate cut, as both growth and inflation remain within comfortable ranges. However, a minority view suggests there could be room for one more reduction to further ease borrowing costs.

According to a note by BofA Global Research, the RBI’s rate-cutting cycle appears to be over for now. The brokerage said the recent trade deal enhances growth certainty, while strong high-frequency indicators suggest the current economic momentum is likely to continue. It added that while rate cuts may pause, the RBI is expected to actively manage liquidity to ensure effective transmission of earlier policy actions.

Kotak Mahindra AMC’s CIO for debt, Deepak Agrawal, said the policy review comes against a supportive domestic macro backdrop. He noted that inflation is well below the RBI’s target, growth momentum remains intact, system liquidity is in surplus, and the government has reaffirmed fiscal consolidation. These factors, along with record foreign exchange reserves and an improving external position, provide the MPC adequate comfort to hold rates steady.

Agrawal also pointed out that tariff reductions by the US and progress on the EU–India free trade agreement could ease pressure on the rupee, allowing the RBI more flexibility in managing durable liquidity. He expects the repo rate to be retained at 5.25 per cent, with mildly dovish forward guidance and a data-dependent stance.

Lokanath Panda, COO of BLS E-Services, said Budget 2026 has laid emphasis on productivity, employment and infrastructure-led growth. In this context, he expects the MPC to pause further rate cuts and instead focus on liquidity conditions, bond market stability and currency risk management.

Retail inflation, based on the consumer price index, has remained below 4 per cent since February 2024 and stood at 1.33 per cent in December. The January inflation data is scheduled for release later this month.

Ashok Kapur of Krishna Group said a stable interest rate environment would support buyer confidence, housing demand and fresh investments, complementing the government’s push for higher capital expenditure and overall economic growth.

The MPC also includes external members Nagesh Kumar, Saugata Bhattacharya and Ram Singh, along with RBI Deputy Governor Poonam Gupta and Executive Director Indranil Bhattacharyya.